A legal analysis of the Islamic bonds ( sukuk ) in Iran

Purpose – The purpose of this paper is to provide a legal analysis of ijara sukuk in Iran which are expected to be issued in 2009. It reviews the proposed structure and the transactions entered into in respect of the sukuks and the legal engineering of those transactions to make them compliant with Shari'a . In so doing, this paper explores the rights and obligations that arise from the contracts on which the transactions in ijara sukuk are based. Design/methodology/approach – The analysis offered by this paper has both theoretical and doctrinal orientations. At a theoretical level, this paper concentrates on the traditional contract of lease, as well as the lease‐to‐purchase vehicle. At a doctrinal level, the purpose of this paper is to highlight the complications embedded in the ijara sukuk and the need to rationalize and harmonize various aspects of Islamic banking and project financing. Findings – It is argued that, while the new sukuk structure complies with the requirements of Shari'a requirements against riba and gharar , it goes against a well‐established expectation of increasing the level of efficiency of the banking and financial sector. Originality/value – This paper provides an original insight into understanding ijara sukuk in Iran. It also contributes to the literature on Islamic finance according to Shi'i jurisprudence.